EU Green Deal: ‘Fit for 55’

Our children will be fighting wars for food and water unless European governments follow new rules from Brussels for curbing greenhouse gas emissions. That was the grim prophecy from Frans Timmermans, the former Dutch foreign minister and – now – the EU’s climate policy chief, as he announced a raft of sometimes bold plans to cut Europe’s greenhouse gas emissions by 55% from 1990 levels by 2030.

Europe was the first continent to declare its policy to reach net-zero by 2050, albeit only last year. Timmermans, a Dutch diplomat and labour party politician who served as foreign minister from 2012-14, is now Executive Vice-President for the European Green Deal, the man tasked with shepherding a new legislative framework to curb emissions. His announcement in Brussels earlier this month signalled the start of a long looming contest between Eurocrats and national parliaments.

“Fit for 55”, as the new measures are known, must be ratified by national parliaments in all 27 member states. “This will mean raising the cost of emitting carbon for heating, transport and manufacturing, taxing high-carbon aviation fuel and shipping fuel that have not been taxed before, and charging importers at the border for the carbon emitted in making products such as cement, steel and aluminium abroad,” wrote RTE Europe editor Tony Connelly.

The core principle is to make polluting more expensive, and greener options more attractive. If approved, the plan promises radical change in just about every aspect of life and business. Timmermans re-stated the direction of travel, but the policy mix erred on the side of caution rather than boldness. Greenpeace spokesperson Faiza Oulahsen suspected more spectacle than substance. The EC launched its new legislative plan with fanfare, even bombast – met heel veel bombarie, she wrote in Parool.

Measures to curb emissions from carbon-intensive industries – aviation, construction, shipping, and heavy manufacturing such as cement and fertiliser – pose myriad problems for policymakers. Public opinion may be divided, but member states are intent on defending these industries against any competitive disadvantage from tougher climate rules. The most polluting sectors would still be supported – maar intussen zie je dat deze sectoren nog altijd gesteund zullen worden, lamented Oulahsen

Ireland’s minister for environment, Eamon Ryan, took a more optimistic line. “Fit for 55” provided a supportive framework for national governments, signalling what “Europe at scale can give, that helps a smaller country like Ireland,” Ryan told Irish public broadcaster RTÉ. The EU would ban diesel and petrol vehicles by 2035, for example. Its rules establish a baseline for member states: “It gives a real signal that this is where you invest, this is where the jobs are coming. This is the new economy”.

EU member states will defend their industries against any disadvantage from tougher climate rules: the most polluting sectors would still be supported

Carbon neutrality – also known as net-zero – by 2050 has become the global benchmark for countless ‘green new deals’, a goal aligned to the 2015 Paris Climate Agreement to limit global warming to well below two degrees above pre-industrial levels. At the heart of the simmering controversy that surrounds every net-zero ambition is the vexed issue of offsetting.

Offsetting is key to the new EC plan – a mechanism for polluters to compensate for their carbon footprint by financing carbon reductions elsewhere. Distrust of offsetting schemes is entrenched. “Fit for 55” was full of accounting tricks, argued Oulahsen – staat vol boekhoudtrucs. Such as emissions trading – zoals de handel in emissierechten. After the fireworks, the spectacle was not all that beautiful: “Je ziet nu veel vuurwerk, maar zo mooi is het allemaal niet”.

A litmus test is whether offsetting leads polluters to re-engineer carbon-intensive processes, rather than buying extra time for business as usual

Emissions trading takes two forms. By far the larger, institutionalised kind is the Compliance Market, which requires liable polluters to comply with caps on the total amount of carbon dioxide that businesses or governments are allowed to emit. Most compliance markets are governed by the United Nations’ Clean Development Mechanism (CDM), a component of the 1992 United Nations Framework Convention on Climate Change, the EU’s Emission Trading Scheme (ETS) was created by Brussels under the terms of the 1997 Kyoto Protocol.

Offsetting carbon emissions is big business, and growing. A recent report by JP Morgan estimated that cement producers in the EU face a cumulative €12 billion bill for offsets purchased via the ETS, assuming carbon prices of €60 per tonne. Offsetting by commercial airlines is the centre-piece of CORSIA, the Carbon Offsetting and Reduction Scheme for International Aviation, a scheme backed by the International Civil Aviation Authority which has lobbied hard to promote offsets as crucial to the industry’s version of “carbon-neutral growth”.

The other kind of offsetting is the Voluntary Market, a spaghetti soup of certification and validation schemes where project owners sell carbon offsets to businesses and individuals. These include the kinds of schemes upsold to travellers on the websites of airlines or ferry companies. Although far smaller than the compliance market, surging demand for voluntary offsets is forecast to reach US$ 514.7 million by 2027, from USD 247.9 million in 2020.

Contrary to the founding rule of economics, more demand has not brought higher prices. Voluntary markets lack transparency, and with so many competing projects the price pressure is downwards. For many larger voluntary offsetting schemes, average carbon prices are well below $10 per tonne. This compares with prices in Europe’s compliance market of more than $52 per tonne, more than double the rate in November 2020 and significantly higher than in the US or China.

Whether voluntary or institutionalised, offsetting has an essential role in the transition to a low carbon economy and net-zero by 2050. But simply compensating for emissions – from cement manufacturing, say, or passenger aircraft – does not contribute to long-term carbon removal from the atmosphere. Sceptics in Europe doubt whether regulators in Brussels have the teeth to shepherd polluters on a low-carbon path.

A litmus test for responsible offsetting is whether carbon credits enable polluters to re-engineer carbon-intensive processes for a low-carbon future, rather than just buying extra time for business as usual. By allowing polluters to pay others to reduce their emissions, while they continue to pollute, offsetting is a means to factor the cost of emissions into business planning and industrial production.

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